Abusing Power: Attorneys Behaving Badly

An enduring power of attorney confers considerable authority and responsibilities on the individual appointed as an attorney. In this blog, we look at the consequences when the delegated powers are abused by the person entrusted with them.

What is an enduring power of attorney?

An enduring power of attorney is a legal document that gives a person the power to act on behalf of the principal or grantor to make financial and legal decisions even where the principal has lost the ability to make their own decisions.

Duties of an attorney under a power of attorney

An attorney is in a position of trust and responsibility. They are expected not to do anything that would pose a conflict of interest, such as benefitting themselves from the grantor’s finances and assets.

If they do not perform this duty responsibly, the consequences for the grantor (and potentially future beneficiaries of their estate) are that assets may be misappropriated to their detriment.

Failure can also have consequences for the attorney. In one case, a father appointed his son, who then spent the majority of his fathers’ savings of almost $160000 on himself, received a two-year prison sentence.

What are the consequences when it goes wrong?

There have been many cases where the Court has had to consider the limits on an attorney’s ability to use power. Recently, the NSW Supreme Court was asked to consider transactions that had taken place under a power of attorney, which had resulted in a substantial reduction in the estate’s value. This resulted in a considerable disadvantage to the beneficiaries named in the deceased’s Will.

In Grant v Grant; Grant v Grant (No2) (2020), Mrs Grant died in May 2017 and her husband, Dr Grant, in November 2019. He was survived by his five children. Between 2011 and 2017, the eldest daughter, Nerez, had power of attorney from her father despite being said to have a drug and alcohol problem and frequently abused her parents to obtain access to funds. Latterly, Dr Grant was resident in a nursing home, and she controlled his care. She made substantial withdrawals from his accounts amounting to $4 million to spend on holidays, cars and other personal items. In September 2017, she also transferred the family residential property to her daughter for no consideration.

Having become concerned, Dr Grant made arrangements for his son Seth to take over the power of attorney but not before Nerez made several large cash withdrawals. These withdrawals meant that Dr Grant was not able to meet his nursing home and medical expenses. The shortfall was met by his son Seth and another of his children.

The estate subsequently issued proceedings against the daughter. During the proceedings, it was alleged by her that she was merely giving effect to gifts that were intended to be made by her father. The Court had to determine whether the transactions were a breach of her fiduciary duty and beyond the authority of the power of attorney.

The Court concluded that the power of attorney appointing the daughter was in accord with the Powers of Attorney Act 2003 (NSW). There were no additional powers that could allow, for example, the power to make gifts. The Court found that she was in breach of her fiduciary duty. Orders were made to set aside the residential property transfer to her own daughter and the payment of compensation to the estate for the money transfers. Nerez’s daughter was considered to have been complicit in the breach of fiduciary duty over the receipt of the residential property.

The case is a warning to those operating under a power of attorney to ensure that they do not make any inappropriate transfers. All transactions should be related to the care and benefit of those they have been authorised to take care of.

Considerations for a power of attorney

Appointing an attorney is important

A properly prepared power of attorney is a very helpful legal document that should form part of everyone’s estate plan. A loss of capacity to make decisions can happen at any time, even to younger persons.

Consider carefully who is to be appointed as attorney

It is important to carefully consider who to appoint as an attorney and understand what powers are being granted and when those powers can be exercised.

The relationship between a principal and their attorney is a fiduciary one

An attorney must act in good faith, refraining from putting themselves in a position where their personal interests conflict with those of their principal. The fiduciary duty owed regulates how the powers under the power of attorney are to be properly exercised.

A person receiving property from an attorney must consider the transaction from an honest and reasonable person's perspective. If necessary, they should make reasonable enquiries as to the circumstances of the transaction.

Review the power of attorney documentation when circumstances change

A power of attorney should be reviewed as circumstances change as it will not be invalidated by marriage or divorce.

At Szabo & Associates, we can advise on and prepare the necessary documentation for an enduring power of attorney. If you are an attorney, we can provide ongoing advice to ensure that obligations are fulfilled.

If it is considered that an attorney is abusing their power, and the grantor still has capacity, we can assist in having the existing power of attorney revoked and replaced if required. If the grantor no longer has capacity, we can refer the matter to the Guardianship Division of the NSW Civil & Administrative Tribunal.

Contact our Power of Attorney Solicitors in Sydney, NSW

If you are thinking of appointing an attorney under a Power of Attorney document, it is important to seek expert legal advice. Please contact Szabo & Associates Solicitors and speak to one of our specialist lawyers. Call us on 02 9281 5088 or complete the online contact form.